Netflix’s set-top box deal with Liberty Global should help it hold on to subscribers

Once at odds with one another, cable providers are integrating Netflix’s platform into set-top boxes

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By

TreyWilliams

Reporter

Netflix Inc. is taking its streaming content to set-top boxes owned by Liberty Global PLC
LBTYA, +0.50%
and analysts at Nomura say that could reduce churn that’s impacted the company recently.

The deal, which Netflix and Liberty Global announced on Wednesday, demonstrates cable operators are coming around to the idea of working with the streaming giant. The two sides have historically been at odds. Customers of certain cable operators, as long as they also subscribe to Netflix, will be able to stream directly from their box. Netflix
NFLX, -0.50%
has signed similar set-top box deals with several operators, including Comcast Corp.
CMCSA, +0.04%
and DISH Network Corp.
DISH, -0.62%

Analysts at Nomura, led by Anthony DiClemente, wrote in a note to clients that these agreements are likely to have a larger benefit in lowering churn — people canceling subscriptions — than improving gross additions.

“We believe that subscribers accessing the Netflix service over a set-top box are less likely to churn, largely because it is easier for customers to access Netflix without having to switch their TV input, increasing customer satisfaction,” DiClemente wrote.

In its most recent quarter, Netflix reported it saw an uptick in churn in the U.S., which it implied was due mainly to media coverage of price increases and the ungrandfathering of subscriptions.

That is just one reason DiClemente, who rates Netflix a buy with a $110 price target, says reducing churn is of increasing important to investors.

“[Over-the-top] competition continues to ramp globally, with the likes of Amazon Instant Video and Hulu increasing their investment in all forms of content,” he wrote. “Over time, we think these set-top box integrations will serve to reduce Netflix churn in an increasingly competitive video environment by making it easier for consumers to access its content.”

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